The insurance industry's reputation for being static and slow tochange is rapidly becoming a thing of the past.

Recent years have brought significant advances and innovation tothe sector. For example, most insurers have made major investmentsin digital initiatives as they seek to innovate customer anddistribution relationships. At the same time, a pioneeringinsurance technology (InsurTech) sector has emerged, exploitingdigital opportunities to complement — and sometimes compete with —the traditional insurance sector.

Beneath this progress, however, lies a danger. According toindustry observers and analysts, as about 80% of traditionalinsurers' innovation initiatives are failing. While a certaindegree of failure in a phase of innovation and learning is to beexpected, and indeed embraced, an industry already underconsiderable profitability pressures can hardly sustain suchlosses.

What's going wrong?

Understanding how firms are approaching innovation and wherethey're starting offers some valuable clues. Most of the sector'smodernization effort is quite rightly focused on the customerexperience. Customers' service and responsiveness expectations haveradically changed in the digital age, primarily driven byconsumers' own adoption of technology and the service levels theyexperience in other industries. Today's customers expect service tobe mobile, 24/7, socially networked, and big data driven. Insurersmust respond to these expectations if they want to remain relevantand not find themselves "Uberized" by a competitor.

These factors largely explain the insurance industry'senthusiasm to embrace InsurTech, which seems to offer a fast trackto new, responsive customer service models. If only it were thateasy. Although InsurTech undoubtedly fits into the equation,InsurTech alone is not the complete answer to digitaltransformation for traditional carriers.

Customer service process is antiquated

As insurers transition from starting up to scaling up theirinnovation and InsurTech initiatives, they must, in most cases,seamlessly integrate them into their existing processing and dataplatforms. Herein lies the problem. It's all very well to introducea progressive, InsurTech-based front-end for policy sales; however,if the customer later experiences an antiquated "traditional"process and service level when submitting a claim on that policy,then the innovation impact will be largely negated.

The issue here is that the majority of innovation and InsurTechinitiatives are, at their core, data and analytics based, includingcloud-based analytics. Although process modernization andintegration has improved considerably in the insurance sector inthe last decade, the same cannot be said of core analyticscapabilities. Most insurance companies now suffer the growingproblem of analytics silos. These are uncoordinated departmental"islands" of analytics technology: languages, tools and skillsetsand their related data. These likely developed over time, often theresult of well-intentioned efforts by IT to satisfy all thedifferent types of user communities.

In a recent survey by FC BusinessIntelligence, 53% of insurers described data silos as the mainbarrier to proper exploitation of analytics within theirorganizations, along with skill shortages and a receptive analyticsculture. Such silos typically lead to issues of reconciliation inoutputs between departments, which in turn lead to lack of trust inthe overall analytics service. We still hear the phrase, "We needone version of the truth!" far too often.

Related: 5 tips for using technology to boost customerengagement

Data grows exponentially

For many insurers, even what we might call "traditional" use ofanalytics is a challenge. If we now consider how the bar will beraised by the demands of scaling insurtech and related advances,then we are in a whole new data and analytics ball game.

In recent years, the industry has witnessed the huge growth inthe variety and volume of data that insurers must now manage. Muchof this new data is not from traditional structured sources likepolicy administration systems. It's instead increasinglysemi-structured or completely unstructured (for example, socialmedia feeds, email commentary, net promoter surveys, images andvideos). The exploitation of data central to most insurtechinitiatives can only add to this load and the underlyingchallenge.

In particular, as the industry begins to scale up IoT [Internetof Things] innovation for mass-market adoption of usage-based autoinsurance and connected homes insurance, it will have to contendwith a new hurdle: very high volumes of data in motion that must bemanaged in real time. This all has huge implications for analyticscapabilities and data architectures at insurer carriers — or atleast those carriers that want to innovate and remain relevant.

Related: Winning with managed services in the age ofInsurTech

Enterprise analytics platform is lacking

There is a growing need for a cohesive, enterprise analyticsplatform at the heart of modern insurance operation. Insurers needa platform that delivers the disciplines and structures needed tomanage data consistently and deploy at scale across theorganization, yet also supports an openness enabling analysts anddata scientists to collaborate and create, using the language andtools of their choice. In particular, this platform needs thecapacity to deploy and manage data and analytics on premise, inpartner platforms and in the cloud, using open APIs to integratethe diverse scenarios that insurtech and related innovation willdrive.

As insurers move from innovation start-up to innovation scale-upand become driven by data patterns rather than just data processes,such an enterprise analytics platform will become basic tablestakes for enabling and accelerating innovation in a new, dynamicworld of insurance.

Related: Rethinking a digital approach to insurance

Norman Black is Principal InsuranceIndustry Consultant at SAS. He can be reached at [email protected].